Online MBA's Won't Kill Business Schools

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read More.

Don't get me wrong: I'm very excited about the possibilities of online education. Asynchronous learning for people who can't get themselves to a classroom! Computer-aided tools to identify exactly where you're weak and to help you review and practice just those bits! Low-cost entry to top-notch professors! My heart beats a bit faster just typing those words.

Richard Lyons, the dean of University of California, Berkeley's Haas School of Business, has a dire forecast for business education: "Half of the business schools in this country could be out of business in 10 years &#x2014; or five," he says.

The threat, says Lyons, is that more top MBA programs will start to offer degrees online. That will imperil the industry's business model. For most business schools, students pursuing part-time and executive MBAs generate crucial revenue. Those programs, geared toward working professionals, will soon have to compete with elite online alternatives for the same population.

Businessweek's Patrick Clark explains the potential threat:

Part-time and EMBA programs are a financial engine because they award less financial aid than full-time programs. Since most of their students are corporate strivers already living near campus &#x2014; and because competition for those students is limited by geography &#x2014; part-time programs can count on a steady stream of high-quality attendees.

Say you're a consultant with young kids in Phoenix who wants to boost her career with a business degree. You'd probably choose a part-time MBA program at the University of Arizona or Arizona State University because committing to a long stint away from home is impossible. Education technology "has the potential to make the proximity factor go away," says Lyons, taking some high-margin students with it.

I think lower-ranked business schools face a lot of challenges; and in fact, I think many of them probably shouldn't exist, because the degrees they confer aren't worth the cost of getting them. But I do not think that a major challenge they face is having elite business schools poach all their students. Elite schools could be doing that now, if they wanted -- throw open their classes and admit five times as many people as they currently do. Sure, classroom space would be a bit tight, but their classrooms are not so overflowing that they could not work more kids into the schedule. They could also build more classrooms and hire more professors.

So why don't they?

When I was starting at the University of Chicago, back in 1999, one of the career-counseling people said something I've never forgotten: "We could put you guys on a cruise ship for the next two years, and you'd still get the same jobs."

She was stating, in a rather funny way, something almost everyone knows: Most of the economic value of an MBA from an elite business school comes from demonstrating that you can get into an elite business school. The rest comes from the classmates you meet, networking and project experience you get. Something close to zero percent of the value comes from your classwork. (Weirdly, I am the exception to this precisely because I am not in an MBA-track job, but in an industry where familiarity with the rudiments of accounting and finance are actually kind of unusual.)

An MBA is an exclusive club, and much of the value from joining that club lies in its exclusivity. None of the business schools in the Top 5 or Top 8 or Top 10 have much economic interest in flooding the market with their students. Sure, they might go into the online education business in a serious way, and if they do, they'll probably pluck a couple of students apiece from third-tier schools -- folks who could have gotten into Harvard but can't leave wherever they happen to be.

But losing a handful of students is not going to kill those third-tier programs. What's going to kill them is if the rest of their students decide they're not willing to take on big debt for dubious employment benefits.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read more